Discussion 1 Week 3 - The controller of Sagehen Enterprises...

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The controller of Sagehen Enterprises believes that the company should switch from the LIFO method to the FIFO method. The controller’s bonus is based on the net income. It is the controller’s belief that the switch in inventory methods would increase the net income of the company. What are the differences between the LIFO and FIFO methods? FIFO stands for first in first out, and under this method of inventory valuation, the inventory that was bought first will be utilized first (Wainwright, 2012). For example, if I buy 100 units of stock on the 1st December and purchase 200 units of stock on the 15th December the first to be used will be the 100 units of stock I bought on the 1st December as that was what I purchased first. This method of inventory valuation is usually used when perishable items such as fruits, vegetables or dairy products are sold, since it is essential to sell the first purchased goods as soon as possible before they perish.

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